Scenario: One person can put down $120k. The other can put down $30k. You both want it to feel fair.
Why unequal down payments matter
When one person puts down significantly more for the down payment, it creates a question: how should that difference be handled? Is it a loan? Part of ownership? Something else?
The answer depends on what feels fair to both of you — and what you can explain clearly. The best approach is the one you both understand and agree to, not necessarily the one that's "mathematically perfect."
There are three common models, each with different implications for how equity is split when you sell. Understanding them helps you choose the one that matches your situation.
Three approaches
Here are the three most common ways people handle unequal down payments:
1. Deposit as a loan (paid back at sale or over time)
How it works: The person who put down more treats the difference as a loan to the other person. When you sell (or at an agreed time), the loan gets paid back first, then you split the remaining equity based on your ownership percentage (usually 50/50 if you're splitting costs equally).
Example: Alex puts down $120,000, Sam puts down $30,000. The difference is $90,000, which is treated as a loan from Alex to Sam. They're on title 50/50 and split all costs 50/50.
When they sell for $800,000 (with a $500,000 mortgage balance), net equity is $300,000. Sam pays back the $90,000 loan first, leaving $210,000. They split that 50/50: $105,000 each. Alex gets $105,000 + $90,000 loan repayment = $195,000. Sam gets $105,000.
Pros: Simple to understand, treats the down payment difference as separate from ownership.
Cons: The person who loaned the money doesn't benefit from appreciation on that amount. If the home appreciates significantly, they might feel like they "missed out."
2. Ownership percentage (title or agreement reflects inputs)
How it works: Your ownership percentage reflects your down payment contributions. If you put down 80% of the down payment, you might own 80% of the home (or some other percentage that accounts for both down payment and ongoing contributions).
Example: Alex puts down $120,000, Sam puts down $30,000. Total down payment is $150,000. Alex contributed 80%, Sam contributed 20%.
If they structure ownership as 80/20 (either on title as tenants in common, or in a written agreement), they split equity 80/20 when they sell. If they also split ongoing costs 80/20, this reflects their overall contributions.
When they sell for $800,000 (with a $500,000 mortgage balance), net equity is $300,000. Alex gets 80% = $240,000. Sam gets 20% = $60,000.
Pros: Ownership reflects contributions, and both people benefit (or bear risk) proportionally to their investment.
Cons: More complex to set up (requires tenants in common title or a written agreement). If you're splitting ongoing costs 50/50 but ownership is 80/20, that can feel unbalanced.
3. Return deposits first, then split remaining equity
How it works: When you sell, each person gets their down payment back first, then you split the remaining equity 50/50 (or based on your agreed split). This protects the initial investment while treating appreciation as shared.
Example: Alex puts down $120,000, Sam puts down $30,000. They're on title 50/50 and split all costs 50/50.
When they sell for $800,000 (with a $500,000 mortgage balance), net equity is $300,000. They return deposits first: Alex gets $120,000, Sam gets $30,000 (total $150,000). Remaining equity: $300,000 - $150,000 = $150,000. They split that 50/50: $75,000 each.
Final split: Alex gets $120,000 + $75,000 = $195,000. Sam gets $30,000 + $75,000 = $105,000.
Pros: Protects initial investments, treats appreciation as shared, relatively simple to understand.
Cons: If the home depreciates, the person who put down more might feel like they're losing more. Also, if you're splitting ongoing costs 50/50 but had unequal down payments, this might not reflect total contributions over time.
Comparing the approaches with a simple example
Let's see how each method works with the same numbers:
Setup: Home purchase price $600,000. Alex puts down $120,000, Sam puts down $30,000. Mortgage $450,000. They split all costs 50/50. They sell for $800,000 with $400,000 mortgage remaining. Net equity: $400,000.
Method 1: Deposit as loan
Sam pays back $90,000 loan first. Remaining: $310,000. Split 50/50: $155,000 each. Alex gets $155,000 + $90,000 = $245,000. Sam gets $155,000.
Method 2: Ownership percentage (80/20)
Split equity 80/20. Alex gets $320,000. Sam gets $80,000.
Method 3: Return deposits first
Return deposits: Alex $120,000, Sam $30,000. Remaining: $250,000. Split 50/50: $125,000 each. Alex gets $245,000. Sam gets $155,000.
Notice that Methods 1 and 3 give the same result in this example, but they're conceptually different. Method 2 gives Alex more because it treats the entire down payment difference as part of ownership.
Which approach to choose
The best approach depends on your situation and what feels fair to both of you:
- Choose "deposit as loan" if: You want to keep ownership equal (50/50) and treat the down payment difference as separate. This works well if you're splitting ongoing costs equally and want to keep things simple.
- Choose "ownership percentage" if: You want ownership to reflect total contributions (down payment + ongoing costs). This works well if you're also splitting ongoing costs proportionally.
- Choose "return deposits first" if: You want to protect initial investments while treating appreciation as shared. This works well if you're splitting ongoing costs equally but had unequal down payments.
The key is choosing one approach and being explicit about it. Write it down. If you can't explain it in one minute, it's probably too complex.
Practical takeaways
- Compare the three models: Understand how each one works and how it affects sale proceeds.
- Understand cash flow vs. ownership: You can split ongoing costs one way (e.g., 50/50) and handle down payment equity another way (e.g., return deposits first). They don't have to match.
- Choose a model you can explain: If you can't explain it in one minute, it's probably too complex. Simplicity reduces confusion later.
- Write it down: Put your agreement in writing, even if it's just a one-page summary. This prevents "I thought we agreed..." conversations later.
- Consider ongoing contributions: If you're splitting ongoing costs 50/50 but had unequal down payments, think about whether that feels balanced over time. You might want to adjust the equity split to account for total contributions.
How Partnered helps (lightly)
Partnered helps you track contributions over time, creating a clear record of what each person has paid (down payment, mortgage principal, renovations, etc.). This record is useful when you need to discuss equity splits or buyouts, because you have factual data instead of "I think I paid more" conversations.
If you want to go deeper, read How ownership percentages actually work or How to calculate a fair buyout.
Education only — not legal or tax advice. Rules and tax implications can vary by province and by your specific situation. If you need advice tailored to you, talk to a qualified lawyer or accountant.